Nikkei hits 2-1/2 month low on China worries, N Korea uncertainty

TOKYO, Jan 6 (Reuters) - Japanese stocks fell on Wednesday after a private survey stoked fears that China’s economy may be losing steam while North Korea’s claims that it tested a hydrogen bomb introduced fresh geopolitical uncertainty that blunted risk appetite.

The Nikkei share average fell 1 percent to 18,191.32 for its lowest close since October 19.

“Whether or not it’s mere sabre-rattling on North Korea’s part the timing isn’t great considering the current uncertainties in the geopolitical landscape,” said Gavin Parry, managing director at Parry International Trading.

“Markets were already legging down on the Caixin services PMI, which showed deceleration in a growth sector. North Korea’s provocation was just the cherry on top of a day when sentiment was already tarnished.”

The Caixin/Markit Purchasing Managers’ Index (PMI> fell to 50.2 in December from 51.2 in November, showing that activity in China’s services sector expanded at its slowest rate in 17 months in December.

The reading was the second lowest since July 2014 and the second lowest since data collection began in late 2005.

Less than two hours after the survey results were released, North Korea said it had successfully conducted a test of a miniaturised hydrogen nuclear device, which would mark a significant advance in the isolated state’s technological capability.

Worries over China’s economy and uncertainty about North Korea’s latest provocation largely overshadowed a survey showing that Japan’s services sector activity expanded in December at roughly the same pace it did in the previous month, and that new business grew at its fastest rate in four months.

The Markit/Nikkei Japan Services Purchasing Managers’ Index (PMI) was a seasonally adjusted 51.5 in December, little changed from November’s 51.6 reading. The index for new business rose to 52.0 from 51.6 for November, a sign that domestic demand is strengthening.

All but three of 33 Topix subindexes ended the day in negative territory, with pharmaceutical shares gaining 0.5 percent and food shares adding 0.3 percent as investors bought into defensive, domestic-sensitive stocks.